Overview of different types of lawyer-client fee agreements

The following are different types of fee agreements that may be entered into between a lawyer and client:

Hourly rate. This involves the lawyer tracking the time spent on the file and charging the client for each hour spent regardless of whether the client’s claim or defence succeeds or fails.

Flat fee agreement. Under this arrangement a lawyer is paid a flat fee for performing specified services. Flat fee agreements can work well for relatively small standardized tasks but are generally not suitable where the amount of work required is uncertain and/or somewhat in the control of other parties.

Contingency fee (also called percentage fee). Under this type of fee agreement the fee paid to the lawyer depends on (i.e. is contingent on) the recovery obtained. This fee arrangement can only be used when the client is a plaintiff, puts a substantial risk of the plaintiff’s claim failing on the lawyer i.e. if there is no recovery the lawyer receives no fee.

Hybrid hourly-contingency. These fee arrangements are a mixture of the hourly rate and contingency fee models and involve the lawyer being paid a guaranteed (but relatively low) hourly fee and then being paid a bonus if there is good recovery on the client’s claim. Similar to contingency fee agreements, these can only be used when the client is a plaintiff. The bonus formula may or may not incorporate a cap such that the overall compensation to the lawyer does not exceed a certain hourly rate. For example, the hybrid agreement may say that invoices at $150 / hour will be paid monthly and then a bonus is to be paid from proceeds recovered such that the overall fee paid to the lawyer is not more than the lesser of:

$300 / hour; and

30% of the amount recovered.

Additional information regarding each of the above fee structures is provided below, including a discussion of the incentives associated with each type of fee arrangement.

Defendants generally don’t expect to obtain any monetary “recovery” which a lawyer can take a fee out of and so defendants generally have to pay for a lawyer by the hour. Paying a lawyer by the hour can be a heavy burden on defendants, especially when they are the targets of frivolous claims. Unfortunately for defendants the choice is often limited to paying a lawyer by the hour or acting in person.

Plaintiffs who hope to recover a monetary judgment from defendants have more fee options available, and contingency fee arrangements are common, especially for personal injury claims.

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